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Can I Remortgage and Existing Personal Buy To Let to a Limited Company/ SPV Buy To Let?

Due to the recent budget changes and increased rental requirements, there is more interest in landlords remortgaging an existing personal Buy to Let to Limited Company or Special Purpose Vehicle (SPV) for the possible tax benefits.

The major drawback is that it is not a remortgage but a purchase. You are selling your existing property to your Limited Company which is a separate legal entity.

I have listed below the factors to take into account.

Click here for more information regarding Limited Company and SPV mortgages.

MORTGAGE

If your existing Buy to Let is mortgaged, this will need to be redeemed as it will have been arranged on a personal buy to let mortgage. Check there are no redemption penalties.

The rates offered to Limited Company and SPV are higher than a personal buy to let. However, if you are currently on your lenders standard variable rate we may be able to remortgage at a lower rate.

Lenders arrangement fees are higher. Currently between 1.00 and 2.00% of the borrowing. These fees can be added to the borrowing.

LEGAL COSTS

You will be liable for valuation and legal costs of the purchase.

RENTAL COVER

Many landlords with personal buy to lets will be unable to remortgage to a better rate or raise additional funds due to the introduction on the 01/01/2017 of higher rental coverage requirements on personal buy to lets.

I have shown below the difference between rental requirements on a personal and limited company buy to let. Based on borrowing £200,000 after funding a 25% deposit.

Personal Buy To Let

145% at a nominal interest rate of 5.50% (Two year fixed).

145% at a nominal interest rate of 5.00% (Five year fixed).

Borrowing

Nominal Rate

Coverage

Rent Required

£200,000

5.50%

145%

£1329.16 (two year fixed rate)

£200,000

5.00%

145%

£1208.33 (five year fixed rate)

Special Purpose Vehicle (SPV) or Limited Company Buy To Let?

125% at a nominal interest rate of 3.85% (Two year fixed).

125% at a nominal interest rate of 3.49% (Five year fixed).

Borrowing

Nominal Rate

Coverage

Rent Required

£200,000

3.89%

125%

£802.08 (two year fixed rate)

£200,000

3.49%

125%

£727.08 (five year fixed rate)

Buying via a Limited Company or SPV means lower yielding properties can still be purchased and capital raised.

DEPOSIT / EQUITY

We have access to lenders who will treat the equity in your existing personal buy to let as the full deposit for the Limited Company or SPV. Minimum deposit/equity required is 15%.

If the equity is not the full 15%, this can be topped up with personal savings.

STAMP DUTY / CAPITAL GAINS TAX

As you are effectively buying the property again you may be liable to Capital Gains Tax and Stamp Duty at 3.00%.

FORMATION OF LIMITED COMPANY / SPV

The first difference to understand is between a limited company which has a very wide area of authority to trade compared to a Special Purpose Vehicle (SPV).

An SPV is a limited company which has been established by private individual(s) for the sole purpose of BTL activities i.e. the purchase/remortgage of residential properties for letting.

The company must be incorporated specifying the appropriate SIC codes:

68100 Buying and selling of own real estate.

68209 Other letting and operating of own or leased real estate.

68320 Management of real estate on a fee or contract basis.

You have the option to instruct your accountant to arrange or you can take a DIY approach.

Click here for further information on how to set up your limited company.

Solicitor and Accountant Advice

As SPV / Limited Company lending and taxation is more specialist we recommend you speak to a solicitor and accountant before proceeding. If you do not have your own solicitor or account or feel that they do not have the specialist knowledge, we can recommend one for you. They will happily discuss over the phone your options and the implications of buying via an SPV / Ltd Co.